Indiana has not eliminated property taxes, but it is moving in that direction. The 2025 legislature passed Senate Enrolled Act 1, which cut property tax bills without repealing the tax. A 2026 proposal, House Bill 1288, would go further and abolish Indiana property taxes after 2027, replacing the lost revenue by extending the state’s 7% sales tax to services that are currently exempt. Complete elimination is not something the legislature can do on its own, though: because property taxation is written into Article 10 of the Indiana Constitution, full repeal also requires a constitutional amendment, and that process cannot put a question in front of voters before the 2028 general election at the earliest.
What Senate Enrolled Act 1 Already Changed
SEA 1, enacted in 2025, is the relief that has actually taken effect. The law increased the homestead deductions homeowners can claim and reduced assessed values across a large part of the property tax base. For a typical homeowner with a $400,000 home, the annual savings cap out at roughly $300. The cuts land much harder on the business side: a company with $400,000 in assessed personal property (equipment, machinery, and similar assets) saves around $12,000 per year.
SEA 1 is a reduction, not an elimination. Property taxes still exist, local governments still collect them, and local fiscal officers are already projecting structural deficits as revenue shrinks. Police, fire, road maintenance, parks, libraries, and school districts all draw on property tax revenue, and even modest cuts translate into difficult budget choices in rural and mid-sized communities. Some analysts expect close to 100 municipal governments could eventually declare fiscal emergencies once the full impact takes hold.
House Bill 1288: The Full Elimination Proposal
House Bill 1288, filed in the 2026 session, is the bill that would actually end Indiana property taxes. It phases the system out and sets a hard cutoff after 2027. To replace the lost revenue, HB 1288 extends the 7% state sales tax to a wide range of services that are currently untaxed, including legal work, accounting, consulting, and landscaping.1Indiana General Assembly. House Bill 1288 – Local Government Finance
The bill would also eliminate county and township assessor offices, the local bureaucracy that determines how much each property is worth for tax purposes. It would sharply limit the creation of new bonds and tax increment financing (TIF) districts, both of which are tools local governments use to fund development projects backed by future property tax revenue. Without a property tax, TIF financing has nothing to pledge against.
HB 1288 is not a slow trim like SEA 1. It sets a date and restructures how the state funds local government from the ground up.
Why Full Elimination Also Needs a Constitutional Amendment
Indiana’s constitution doesn’t just allow property taxes. It requires them. Article 10, Section 1 directs the General Assembly to “provide, by law, for a uniform and equal rate of property assessment and taxation.”2Justia. Indiana Constitution Article 10 – Finance A regular statute like HB 1288 can shrink or restructure property taxes, but eliminating them entirely conflicts with that constitutional mandate. Full repeal takes an amendment.
Amending the Indiana Constitution is slow by design. A proposed amendment must pass both chambers of the General Assembly by majority vote, then pass both chambers again in the next General Assembly elected after a general election, and then go to voters statewide for approval.3Justia. Indiana Constitution Article 16 – Amendments An amendment introduced in 2026 cannot reach voters before the 2028 general election.
Senate Joint Resolution 3, also filed in 2026, is the piece intended to do the constitutional work. SJR 3 proposes changes to the circuit breaker credit provisions and property tax levy authority embedded in Article 10.4Indiana General Assembly. Senate Joint Resolution 3 – Constitutional Amendment on Circuit Breaker Credit HB 1288 and SJR 3 would need to work together: the statute would create the new tax structure, and the constitutional amendment would remove the old mandate.
Where the Replacement Revenue Would Come From
Property taxes generate billions of dollars a year for Indiana’s local governments. Replacing that money is the whole problem, and HB 1288 leans primarily on the sales tax to solve it.
Extending Sales Tax to Services
Indiana currently charges 7% sales tax on goods and tangible personal property, and most services are exempt.5Indiana Department of Revenue. Indiana Department of Revenue – Sales Tax HB 1288 would apply that 7% rate to a broad slate of services that generate zero sales tax today, including legal fees, accounting, consulting, and landscaping. Only a handful of states currently tax professional services broadly. The revenue math works because the modern economy is overwhelmingly service-driven, so bringing services into the base captures transactions the state does not touch now.
The proposal does not raise the 7% rate itself, at least initially. Whether the wider base alone produces enough to fully replace property tax revenue is an open question, and rate increases could follow if it does not.
Income Tax as a Backstop
Indiana’s individual income tax rate sits at 2.95% for 2026.6Indiana Department of Revenue. DOR – Rates Fees and Penalties Lawmakers have discussed adjusting the state rate or local income tax rates as a secondary source if sales tax expansion falls short. Counties already have authority to impose local income taxes, and raising those rates could help municipalities keep funding police and fire departments that currently rely on property tax levies. The trade is direct: homeowners would pay less (or nothing) in property tax and potentially more in income tax.
The Stability Problem
Property taxes are boring, predictable, and nearly recession-proof, which is exactly why local governments depend on them. Assessed values change slowly, collection rates are high because the property itself secures the debt, and revenue does not crater when the economy slows. Sales taxes behave differently. They track the business cycle closely, with strong receipts when consumers spend freely and steep drops when a recession hits.
Swapping a stable revenue source for a volatile one creates budget risk that lands hardest on services people need most during downturns: police, fire, and social services. A school district funded by property taxes can plan three years out with reasonable confidence. The same district funded by sales tax receipts has to build larger reserves and cut faster when revenue dips. Volatility is the main reason most states that have studied property tax elimination have not gone through with it.
Who Gains and Who Pays More
Property taxes, unpopular as they are, at least track wealth loosely: owners of more valuable property pay more. Sales taxes fall on spending, and lower-income households spend a larger share of their income on taxable purchases than wealthier households do. A family earning $40,000 that spends nearly all of it on living expenses would pay sales tax on most of their income. A family earning $400,000 that saves or invests half of that would pay sales tax only on the half spent.
That makes the shift regressive on its face. Renters face a specific imbalance. They don’t directly pay property taxes today; their landlords do, and pass some of that cost through in rent. There is no guarantee landlords will lower rent if property taxes disappear. Renters would, however, immediately pay higher sales taxes on services. The net effect could be that renters subsidize a windfall for property owners, especially owners of commercial real estate, who currently sit under a 3% cap and would see that liability vanish entirely.
Homeowners with modest homes may see limited upside. Existing homestead deductions and the 1% constitutional cap already keep tax bills relatively low on homes under $250,000. For those owners, elimination savings could be smaller than the new sales tax charges on haircuts, car repairs, legal consultations, and landscaping.
Rural communities face their own version of this problem. Many small towns have limited retail activity and would generate little sales tax revenue locally. Under the current system, those towns can levy property taxes on farmland and homes regardless of local commercial activity. Shifting to consumption-based funding makes their budgets dependent on spending patterns in Indianapolis, Fort Wayne, and other population centers, and on how the legislature writes the distribution formula that routes state-collected sales tax back to counties, cities, townships, and school districts. That formula is where most of the political fights will happen.
Effect on Your Federal Return
Federal law lets taxpayers who itemize deduct state and local property taxes, income taxes, and general sales taxes, all counted against the same aggregate SALT (State and Local Tax) cap.7Office of the Law Revision Counsel. 26 USC 164 – Taxes For 2025, that cap was set at $40,000 for most filers, with a 1% annual increase indexed going forward and a phase-down for filers with modified adjusted gross income above $500,000.
If Indiana eliminates property taxes and replaces them with higher sales taxes, the effect on your federal return is largely a wash. You lose the property tax deduction and gain a larger sales tax deduction, or you continue deducting income taxes instead. Because the SALT cap aggregates all three, most Indiana taxpayers already hitting the cap would see no federal change. Taxpayers who currently itemize primarily because of a large property tax bill may need to recalculate whether itemizing still makes sense, particularly if their total state and local tax burden drops below the standard deduction.
What Happens if the Plan Stalls
Full elimination requires both HB 1288 and a constitutional amendment, and either can fail. If HB 1288 passes but the amendment stalls, which is the likelier outcome given that amendments must clear two separate legislatures and a statewide vote, Indiana could land in a middle ground where property taxes are reduced to near zero by statute but still authorized by the constitution. That situation would leave future legislatures free to reinstate levies without a public vote.
Even SEA 1’s more modest cuts carry risk. Local governments facing structural deficits have limited options: cut services, raise local income tax rates, impose user fees for services like garbage collection and fire protection, or petition for referendum-approved levies that sit outside the constitutional caps. Some combination of all four is likely. Homeowners celebrating lower property tax bills may find those savings partially offset by new fees and higher local income taxes within a few years.
For homeowners right now, the practical step is to confirm you are claiming every deduction available, especially the standard and supplemental homestead deductions, which many eligible homeowners miss.8City of Indianapolis. Apply for a Homestead Deduction If your bill already sits at or below the constitutional cap for your property type (1% of gross assessed value for a homestead, 2% for other residential and agricultural property, 3% for commercial and business personal property),9Ballotpedia. Article 10, Indiana Constitution elimination would save you that capped amount and no more, and the replacement taxes on services and potentially income could narrow the gap significantly.